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Carbon-adjusted portfolio selection: A counterfactual analysis

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  • Kharbach, Mohammed
  • Ben Amar, Amine
  • Lalioui, Hafid

Abstract

We investigate investor behavior in a counterfactual scenario where shareholders are subject to a carbon tax, and we compare the structure and performance of the carbon-adjusted portfolio to those of the mean-variance portfolio. Results suggest that applying such a tax does not lead to significant changes in portfolio structure. The impact on performance becomes relatively noticeable only if the tax is particularly stringent. Therefore, implementing a carbon tax could be justified, as it may support decarbonization, at least partially, without significantly affecting investors’ economic outcomes.

Suggested Citation

  • Kharbach, Mohammed & Ben Amar, Amine & Lalioui, Hafid, 2025. "Carbon-adjusted portfolio selection: A counterfactual analysis," Economics Letters, Elsevier, vol. 246(C).
    • Handle: RePEc:eee:ecolet:v:246:y:2025:i:c:s016517652400555x
    DOI: 10.1016/j.econlet.2024.112071
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    References listed on IDEAS

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    1. Benjamin R. Auer, 2016. "Do Socially Responsible Investment Policies Add or Destroy European Stock Portfolio Value?," Journal of Business Ethics, Springer, vol. 135(2), pages 381-397, May.
    2. Marco Ceccarelli & Stefano Ramelli & Alexander F Wagner, 2024. "Low Carbon Mutual Funds," Review of Finance, European Finance Association, vol. 28(1), pages 45-74.
    3. Pedersen, Lasse Heje & Fitzgibbons, Shaun & Pomorski, Lukasz, 2021. "Responsible investing: The ESG-efficient frontier," Journal of Financial Economics, Elsevier, vol. 142(2), pages 572-597.
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